Intervention in Jamaica: The I.M.Fs Quagmire

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After its independence in 1962, the island nation of Jamaica struggled to stabilize its fledgling economy—Jamaica was heavily dependent on Great Britain for trade and loans, as the infrastructures in place did not efficiently facilitate production for domestic consumption.

In the 1970s the global economy came to a stand still as a result of the OPEC crisis, with Jamaica essentially being crippled, as it could no longer rely on bilateral loans or private banks to aid the development of the Jamaican economy. It was at this juncture that Jamaica requested aid from the IMF and World Bank; this request would lead to the implementation of drastic liberalization policies that would change the economic structure of the island. 

Jamaica’s debt has grown significantly since its independence in 1962 and it’s a fair assumption that this is in part due to its implementation of ISI as a mode of protectionism. This protectionism catalysed the decline of the Jamaican economy. The adoption of protectionist policies meant that Jamaica became ‘unattractive’ to foreign investors and ultimately resulted in Jamaica’s inability to repay loans. In this example the debt cycle is perpetuated, as in order to repay its existing loans, Jamaica was forced to take even more loans. Furthermore, due to Jamaica’s lack of export revenue loan penalties occurred as a form of debt accumulation. A consequence of this debt was that Jamaica was forced to produce commercial goods to augment export revenue at the expense of the domestic market. The focalization on exports resulted in the need to import necessity goods and resulted in a balance of payments deficit. In addition to the balance of payments deficit, Jamaica devalued its currency in order to stimulate investment in the economy, which resulted in inflation. The instability of the Jamaican economy after its independence and the OPEC crisis resulted in the adoption structural adjustment policies that significantly altered not only the Jamaican economy but also the socio-economic environment.

One of the first Structural Adjustment Programmes (SAPs) to be implemented in Jamaica was that of trade liberalization. This policy stated that Jamaica must reduce its artificial trade barriers, reduce domestic subsidies that facilitated import substitution industrialization (I.S.I) and ultimately the devaluation of the Jamaican dollar. The reduction of artificial trade barriers was meant to encourage foreign investors to invest in Jamaica, as the cost of exporting to the island would now be reduced. By reducing barriers to trade foreign direct investment (FDI) was increased and there were larger inflows to the economy.

The shift from ISI to export-led growth meant that Jamaican industries focused on production for international consumption as opposed to domestic consumption as it had done before. However, this shift had negative effects on domestic ‘sunrise’ industries. The shift from domestic production for consumption to domestic production for export meant that the government had more capital to spend on imports, which in theory benefited consumers as there was more product diversity and this competition meant reduced prices for consumers.

The reduction of subsidies to domestic industries meant that there was an increase in unemployment as domestic companies were forced out of business by international firm. Ultimately resulting in the Jamaican markets becoming saturated with foreign goods. The agricultural industry suffered most, as domestic farmers were no longer able to compete with the influx of foreign goods that had been subsidized by foreign governments. An example is the milk industry. The milk industry suffered greatly as it became cheaper to export powder milk than to buy domestically produced milk products; the decline of the domestic dairy industry lead to mass unemployment and wastage of resources (Black). 

The second SAP to have a large effect on Jamaica was the adoption of austerity measures, which called for reduction of government spending. In order to reduce this spending the IMF instructed the government to reduce spending in specific sectors that are deemed cost ineffective, once the government agrees to the terms of the loan then they may bot default on the agreement. Austerity measures have included cuts in the national health budget, educational budget and that of national infrastructure.

The implementation of these austerity measures in Jamaica, have resulted in poor health care (including sanitation), poor domestic infrastructure; the infrastructure that locals rely on are deficient whereas the infrastructure that is needed to facilitate export of goods are improved. The reduction in spending on education has a gross effect on Jamaica as in both the long-run the Jamaican economy will suffer as the youth are unable to compete with foreigners for employment opportunities and would ultimately be forced into unskilled labour opportunities such as factory work. 

Additionally the adoption of deregulatory policy meant that the Jamaican government was to become less involved in enterprise within the country.

"The Jamaican government would allow the market to function on its own without intervention."

The benefits of this lack of regulation were to be stimulated growth in the economy as there were to be fewer restrictions on domestic and foreign firms. The lack of government restrictions on enterprise resulted in the creation of many ‘start-up’ businesses, which in turn provided employment in the short-run. Conversely, The deregulation of the national economy has had an adverse affect on domestic firms as lack of government regulation has made it difficult for domestic firms to compete with international firms.

International firms have the benefit of size and support from their own governments in context of economies of scale, which give them a comparative advantage over domestic firms. In addition, the deregulation policy acts as an incentive for Multi National Corporations (MNC) to enter the country. The arrival of MNCs in Jamaica was initially thought to bolster employment and further stimulate the economy and ultimately the standard of living for Jamaicans; however, this was not the case. Due to the lack of educational infrastructure within the country locals are predominately hired as unskilled labourers and are paid the minimum wage while foreign employees are paid much more.

In addition to the deregulation of the economy, the IMF called for the privatization of national industries. The divestment of state own enterprises such as autobus services, the Jamaican banana board, sugar firms and the outsourcing of various hospital services were SAPs that shocked the Jamaican economy. The privatization of national firms stimulated foreign investment and aimed to make the Jamaican economy more efficient. Additionally, The privatization of national industries ensured that government capital was not ‘wasted’ on non-lucrative ventures and only spent on resources that would lead to increased profitability. However, the Darker face of the coin showed that the reduction/removal of national services in the country increased the financial burden on lower class Jamaicans who had always relied on national industries to sustain them.

The abovementioned IMF adjustment policies each affected the Jamaican economy in positive and negative ways, however, it is important to consider the socio-economic effects that these SAPs have had on Jamaica. The adjustment policies have the largest effect on the lower classes in the country, as it is they who rely heavily on the government regulation of goods and resources. The shift from ISI to export led growth results in the creation of more jobs as the market of intended sale has expanded and therefore more labourers are required in order to meet the increased demand of goods and services.

 In order to facilitate the growing export industry in Jamaica, the government created export-processing zones (EPZs). In these EPZs the government allows firms to be operate without taxes or other barriers to trade as incentives for firms to operate within the country. These EPZs employ thousands of factory workers in Jamaica, however, as mentioned prior, the employment in these zones relies on unskilled domestic labour and skilled foreign labour. These domestic labourers are paid to assemble and package goods that have been manufactured in other areas and these goods are ultimately sold back to Jamaicans at a large profit mark-up.

The adoption of austerity measures in the country directly affects all Jamaican citizens and places larger economic burdens on the population. The reduction of government spending on national services such as health care and education resulted in increased rates of disease and influenza, poor sanitation, and education standards. Along with the adoption of austerity measures, the deregulation of markets reduces the ability of lower class Jamaicans to access basic good due to the fact that private entrepreneurs control the distribution of these goods. The lack of access to basic goods/services exacerbates the epidemic of poverty in Jamaica and further perpetuates the poverty cycle.

The arrival of the International Monetary Fund in Jamaica greatly altered the economic state of the nation and shifted it to a neoliberal economy. The liberalization of the economy along with the abovementioned structural adjustment policies changed the socio-economic dynamic in the country. The adoption of these policies even though contestable, did in certain contexts benefit the Jamaican economy, whether it be the through creation of jobs (however limited) or the influx of investment and trade to the country, it cannot be denied that these measures were in a way beneficial. However, the negative effects on the socio-economic state of the country cannot be ignored. In both the short and long runs the adoption and implementation of structural adjustment policies have lead to the perpetuation of the poverty cycle and the further subordination of Jamaica in the world economy.

 

 

 

 

 

 

 

References

 

Handa, Sudhanshu and Damien King. "Structural adjustment policies, income distribution and poverty: A review of the jamaican experience." World Development Journal (1997).

Haslam, Paul, Jessica Schafer and Pierre Beaudet. Introduction to international development: Approaches, actors and issues. Oxford university press, 2009.

Life and Debt. By Stephanie Black. Dir. Stephanie black. Prod. Stephanie Black. 2001.

SANGMPAM, S.N. SYRCAUSE, March 2014.

 Comparing Apples and Mangoes: The overpoliticized State in Developing countries. State university of NewYork, 2007.